2 Answers
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Pet Sematary is based on the novel of the same name. The name is described by the elderly neighbor, Jud. He explains that it was created by the children of the neighborhood to bury their dead animals killed on the heavily travelled road. The children had misspelled the name when it was created.

Quoting the Stephen King novel:

...It narrowed, and then, just ahead, Louis saw Ellie and Jud go under an arch made of weatherstained boards. Written on these in faded black paint, only just legible, were the words PET SEMATARY.